Zynga Can't Buy Its Way Out of This

Three hours is all it takes to become an overnight sensation on Apple's (NAS: AAPL) App Store these days.

Rovio -- the maker of the Angry Birds games -- put out Bad Piggies on Thursday. It's a new franchise starring the same targeted pigs from the Angry Birds franchise. Tech blog TechCrunch reports that the $0.99 game was at the top of the App Store paid chart within three hours of its release.

Sorry, Zynga (Nasdsaq: ZNGA). You probably can't afford to buy Rovio.

Zynga has drawn attention for going out of its way to acquire developers of games that challenge its position as the king of the hill. Most notably, it shelled out $180 million earlier this year to purchase Draw Something app maker OMGPop.

Draw Something had been on top of Apple's App Store in the game category for weeks. The Pictionary knock-off had collected 35 million downloads, and if drawing games were going to be the next big thing in social gaming, Zynga figured it may as well add it to its collection.

Fittingly enough, Draw Something dropped off the top of the charts the day after the deal was announced. Rovio's Angry Birds Spacedebuted at the top of the App Store.

It's not as if the "buy the disruptor" strategy was working all that well for Zynga. The market may have initially liked the OMGPop deal, but OMGPop also describes what has happened to Zynga in the months since the deal was struck.

Zynga shares have shed 79% of their value since the day after the buyout was announced. Put another way, Zynga's market cap has received an $8.3 billion haircut since shelling out $180 million for its acquisition.

We obviously can't blame OMGPop for Zynga's woes. Some of its marquee games on Facebook (NAS: FB) began to lose players, and trying to make it up in volume -- putting out a wider variety of games -- only illustrated how fickle this market can be when the playing field is surprisingly level. Sure, established gaming companies including Zynga, Rovio, and Electronic Arts will have an advantage when they put out a new title, but there's always a fledgling OMGPop out there turning into an overnight sensation.

The good news for Zynga is that it's flush with cash and profitable. However, now that growth has slowed, investors lack the catalysts for the stock to claw its way back up and out of the single digits. As long as profitability remains -- and that's certainly not a given -- investors can be comforted by the cash cushion. However, it's hard to get excited about the floor when the ceiling is so far away.